Victoria, BC real estate blog - "because we never know when interest rates will be increased to stimulate the economy" ~ VREB

Monday, June 2, 2014

May results and a whine from the mortgage industry

May numbers are in, and they're about as expected. 714 sales which puts us on the low middle between a hot market (963 in May 2007) and a moribund one (572 in May 2011). Prices are well within the margin of noise, with SFH medians up a bit, and townhouses and condos flat.

Just Jack has it right when he says that the market is very fragmented. There are both reasonably good deals in certain segments, while others have barely declined at all. The best options price-wise seem to be those houses that have one or two little defects, or a few year old condos. Unless that condo is cash flow positive, it's likely a losing proposition in the foreseeable future.

While Victoria's market is spectacularly unexciting, the rest of the country seems to be doing ok, with just a few cracks showing in such unimportant places like Halifax and Quebec.. and Ottawa... and Montreal. Not to worry. However just in case there is something to worry about - like more government regulation - the Canadian Association of Accredited Mortgage Professionals are either hosting their annual get together for hay fever suffers (CAAMP ACCHA!), or have released their spring quarterly report. In there they conclude that the 2012 mortgage changes were inappropriate, in that they apparently didn't do much to slow price appreciation in Canada.

Otherwise there isn't much of interest, mostly because the survey isn't worth a lot. When they claim that average Canadian homeowner equity has increased by 6 percentage points in 6 months, you can pretty much judge the validity of the rest of the numbers.

One interesting tidbit: Adding up the increased payments and lump sum payments, we get 12 billion in additional mortgage pay down in 2013. Pretty impressive right? Except at the same time home owners extracted $52.7 billion in equity out of their homes. Well I'm sure the economy won't miss that $40 billion in spending when that well dries up.

The riskier the investment, the higher the rate of return. In otherwords if you are going to lend on a risky investment then you'd charge a higher interest rate to compensate for the additional risk.

And the private mortgage market does charge substantially higher rates. If you're a builder who has had several bankruptcies and building "spec" homes that rate will likely be around 12%.

However, if you can get that mortgage insured then the rate is down to 3 or 4%.

That's the problem. CMHC expanded its lending to cover higher risk mortgagees. CMHC had no business being in that market segment. It was being done to feed the federal coffers with insurance premiums and defer an economic recession. Now OSFI is reducing the level of risk that the previous CMHC wanker directors had taken.

Generally, 5 to 7 Months of Inventory (MOI) a Sales to New Listings ratio (SNL%) between 40 to 60 percent and between 30 to 90 days on the market (DOM) indicate a balanced market between buyer and seller with stable prices.

Less that 5 MOI, a SNL% greater than 60% and a DOM of less than 30 indicate a market in favor of the seller that may lead to increasing prices.

This might help some readers in visualizing what neighborhoods are hotter than others.

It's been an average to good Spring market. Nothing fantastic and a little boring. But now that we are heading into the slower summer months I would expect the market pendulum to begin its swing back from a market favoring sellers to one favoring buyers. I would also expect the Sales to Assessment Ratios to have peaked and the SA% will begin to slide back to pre Spring market levels.

Victoria City had 5.2 MOI last month. A SNL% of 56%. A DOM of 54 days. And the typically re-sale condo price was at 99.7 percent of its assessed value.

Vic West, Esquimalt and View Royal had 5.8 MOI, 41% SNL% with the average home selling after 54 DOM at 101.2% or its assessed value.

Saanich East had 6.0 MOI with lots of new listings coming on the market which sewered its SNL% to 35%. 58 days to find a buyer with the typical condo selling at 101.8 percent of its BC Assessment.

I expect some good deals on strata titled condos this summer as demand weakens. Might even be time to sharpen up those talons and do some vultching on some of the condos that are on the outside of the herd.

Compared to what? If you consider the performance of pre-owned condo markets in most other Canadian cities, Victoria's condo market is weak in comparison.

Remember, Canada's housing market continues to be heavily stimulated. Condo/house prices across Greater Victoria should be experiencing strong gains under these conditions. That prices in Victoria are not increasing in this heavily stimulated environment is a sure sign of weakness.

Under these circumstances, your statement that Victoria's "pre-owned condo market did ok this spring" is false.

Compared to the months of inventory, sales to new listings ratio and days on market.

All of them suggesting that the market while not stellar is still okay. Condos are still selling at close to their assessed values, taking a little bit longer to find a buyer and there isn't a torrent of new listings coming to the market.

Let's compare those numbers for the core to where the population of Greater Victoria has been growing the fastest over the last decade.

In Langford and Colwood there is 4.8 Months of Inventory. The Sales to New Listings Ratio is at 58% and it now takes a house on average 50 days to find a buyer. Not bad if we were talking about the overall year but we're looking at the strongest market of the entire year, the Spring, and we just got to a ho-hum balance.

And at the precipice of our CMA is Sooke. 8.9 Months of Inventory. Sales to New Listings Ratio at 43% and we are into extended listing contracts to sell a home on average now taking 102 days.

And before you say "How can it get worse than Sooke" There's Salt Spring Island. 12.2 MOI 47% SNL% and 178 days to find on average a buyer. If it weren't for a spat of Vancouver buyers thinking they're getting a deal in the last month those numbers would be a lot worse. Just wait till those Vancouverites meet the Salt Spring Island Fockers. I give them one summer and they'll be back to their East Van massage parlors. No happy endings on the island for them.

Nice graphs LeoS, as usual. The graph "Victoria SFH Median & Yearly Months of Inventory" might be interesting if you add the mortgage rate for a five year fixed rate, currently at 2.99%.

I watch only one narrow segment of the housing market in Greater Victoria, in a few specific neighbourhoods, and narrowed down to a typical SFH 3 bed 2 bath with full basement without a suite. To gauge the relative price I've used a simple formula to watch the price changes over the past 20+ years. The formula is simply this:2,000,000 divided by the current 5 year fixed mortgage rate.For example:2,000,000 divided by 2.99 = $669,000 which is exactly what my watch list houses sell for currently, on average.

Several years ago when interest rates for a 5 year fixed was 7% the result was:2,000,000 divided by 7 = $285,000 which was exactly what my watch list houses sold for on average.

The formula is modified slightly for various house types and neighbourhoods and whether or not the house is well maintained and whether or not recent quality renos have been done.

When interest rates go up it's clear and obvious that house prices will decline in direct relationship to 5 year fixed rates.

I think interest rates play a larger factor in house prices as we near the end of a boom cycle. At the start of an up cycle like we had in 2000 the interest rate played a small part in house prices.

Interest rates today provide a stress test on prices as prospective buyers are maxed out on price, amortization and debt service levels.

I also think most buyers significantly underestimate the additional monthly costs of home ownership other than the mortgage payment. Property taxes, garbage, water are substantial hard costs that a home owner has no control over. You might be able to turn out a light or hang the clothes to dry to reduce your variable costs like electricity but you're hooped on municipal fees and taxes.

And if Mayor Dean goes the sewer proposal alone, I think we may see an exodus of pensioners from the city. How many of us could afford our municipal fees to double or triple from what they are now?

When inflation rate is rising faster than interest rate, as is case now, prices go up with rising interest rates. Leaders always wait long time for plenty inflation before allowing interest rate to rise. Capitalism work best this way.

Bank of Canada leaves key interest rate unchangedThe Bank of Canada left its benchmark interest rate unchanged at one per cent today. An unchanged rate means governor Stephen Poloz does not believe the Canadian economy is strong enough to withstand higher interest rates, despite lingering concern about high consumer debt and rising housing prices.

Stephen Poloz keeps us guessing about economyEssentially, leaving interest rates the same is a vote on the gloomy side. That's because a change in favour of higher rates would mean the bank was expecting the smouldering North American economy to catch fire....On Friday, both Canada and the United States will get their next important economic indicator, when the jobless figures come out. Last month, Canada got a rude shock when the economy lost 29,000 jobs instead of gaining 13,500, as economists had predicted.

“The changes are a business decision designed to increase market discipline in residential lending while reducing taxpayers’ exposure to the housing sector through CMHC,” an official release from the crown corporation reads. “They also support the government’s continued efforts to adjust the housing finance framework to restrain growth of taxpayer-backed mortgage insurance, as noted in Economic Action Plan 2014.”

The CMHC should not rest until we have a 100% home ownership rate. There is nothing wrong with sub prime mortgages when the housing market moves up in value every year.

It seems more regulations are coming for CMHC as OSFI attempts to get them back to their original mandate of 20 years ago of assisting people to buy a home. That the political whores later turned it into an instrument to protect lenders from dubious lending policies for investors and condominium builders and thus fill the government coffers with billions in insurance fees. Thereby inflating prices and placing the Canadian tax payer at risk.

But I digress.

Further mortgage caps limiting the size of the jumbo loans are necessary and I think more stringent controls on the 5% minimum down payment should be considered. 5 percent is too little skin in the game and much too easy to acquire from parents and credit cards. The down payment has to be large enough to create a barrier, if only psychological, to entry into the housing market. It also may cause the parents to think...

"Well Jonny you've always been a little shit to us over the years, we would've done 5% just out of guilt, but you're not worth the risk at 10"

Interesting market right now. The core seems to be doing okay; however, outside of the core certain market segments are a tough go right now like the Westshore above 700k or the Peninsula over 800k.

4300 sq/ft home on Bear Mountain just sold yesterday for $690,000 (previous purchase price $739,000). Not one sale on BM over $1 million this year; however, 13 properties currently listed over $1 million.

Than you have Happy Valley and the sub brand new 500k market that seems to be doing okay.

I'm seeing similar results here on the Saan Pen. I commute / shortcut past the Tanner Ridge area daily and I see many houses over 800K sitting on the market since early spring (or earlier), unsold. Some of been pulled off the market. Yet Canora Mews (Sidney Airport) is allegedly selling very well.

Gary Lunn paved a 24 million McTavish Road Interchange (aka Airport Roundabout) right up to his newest development. Property virgins seem to love the starting price and the fact that they can high-five their neighbours through facing windows.

Why would you buy a million dollar home on BM? It's an unfinished development zone. A buyer should get a deal for buying into a construction zone that could last their lifetime. If I had that kind off $$ I would buy in an established area....

No it's not that bad. It's just not the finished dream. If I have a million I have a lot of options for a house. Now that the hype is over it's a harder sell. There is simply more value in established areas.

"Judging by the info meter of activity on HHV the threat of an imminent crash is over...."

I'll assume you are talking about me.

As I've said many times on this blog, no bull has been able to find any proof that I wrote about an "imminent crash" on this site.

Bulls have accused me of this in the past. When I challenged them to find a quote to substantiate their claim, they failed to do so.

I have, however, said that it's possible that house prices in Victoria could fall a total of 40-50% over the course of 10 years (4-5% per year). It wouldn't qualify as a crash, but it would be just as devastating.

House prices in Victoria are lower now than they were in 2010 despite the market-boosting effect of a heavily stimulated environment of lax lending standards and historically low interest rates. Prices should have been skyrocketing, not falling. This fact highlights the weakness of Victoria's housing market.

Further (significant) price declines will happen. No doubt about that. I haven't changed my view one bit.

Yeah I agree Victoria's house prices will continue to drop while prices continue to rise pretty much everywhere else nationwide. Victoria's such a terrible place to live and has such a terrible economy I see no reason for housing prices to rise here. We're the tip of the spear.

You seem to be hung up on the word imminent. You do realize "soon" is a synonym in the context of a housing crash right?

You stated that, to quote, "Canada's housing bubble will burst soon".

You also indicated that Victoria would fall harder than other cities.

For example: "Victoria's price decline from peak leads all Canadian cities... in the US, the cities that started to correct/crash first (think Victoria) experienced, in general, the biggest overall price declines from peak."

Soon is not 5000 years from now under any definition of the meaning of the word in relation to the housing market.

Soon means imminent and, in particular, at a time that is not long from now. Check your dictionary or the online version:

http://www.merriam-webster.com/dictionary/soon

September 6 2013 Info blogpost:

"Unfortunately for most mortgage holders, the (debt induced) housing bubble days will soon be a thing of the past in Canada"

http://househuntvictoria.blogspot.ca/2013/09/august-wrap-up.html

September 3, 2013 Info blogpost

"The sales boosting effect of the (soon to be underwater) rate hold crowd will taper off before the end of September, then sales will tank."

August 2013 Info blogpost comment:

"Foreign investors know that the Canadian housing market will be undergoing a major correction soon and their actions prove it."

"Canada's housing bubble will burst soon and millions of debt addicts will be forced to face the consequences of their actions. The housing market correction/crash will cause many Canadians financial hardship for many years."

"Judging by the info meter of activity on HHV the threat of an imminent crash is over...."

Nowhere on this blog did I write that Victoria's housing market was facing an "imminent crash". Facts are facts.

Despite repeated attempts by bulls on this blog, no such phrase has been found.

Totoro, you have been unsuccessful in our attempts at finding this quote as well. It simply doesn't exist.

Obviously you are obsessed and angry with me.

You ignored my warnings about a price correction for Victoria's housing market 2-3 years ago and bought a house near the peak.

You have no positive factual information to present on this blog with regard to the performance of Victoria's housing market since 2010, so you turned your attention toward me and attempted to discredit me.

These attempts at discrediting me have failed. In the process, you have lost all credibility.

In your last post, you twisted words around in an attempt to confuse readers into believing that I predicted an imminent crash for Victoria's housing market, but that didn't work. It made you look even worse.

None of the quotes you provided in your last post say that I predicted an "imminent crash for Victoria's housing market.

You can't pin the phrase "imminent crash" on me. It simply will not happen. As I've said, it doesn't exist.

Perhaps your time would be better spent attempting to find something positive about the performance of Victoria's housing market since 2010. Oh wait, that isn't possible either. SFH sales have been well below Victoria's long term average since 2010 and house prices in Victoria have fallen since then as well, enough that many peak buyers are now dealing with negative equity and have, effectively, been eliminated as potential move-up buyers.

My conclusion is that you have difficulty with English and with being wrong.

It was never about pinning a specific phrase on anyone, it was about your prediction that there would be a crash very soon which changed early in 2014 from prices will crash in the near future to prices will decline slowly over a number of years plus a denial that you'd ever said anything different.

Many of your previous posts have been deleted. But I digress. Why would anyone care if you used the word "imminent" or "soon" or any other synonym?

My guess is that English is not your first language, in which case I would give some leeway. Ditto with disordered thinking which is hopefully partly cultural. So, I agree, it is probably time to give it a rest.

As for purchasing a home in 2012, yes, I bought a multi-family property with 20% down which I now live in for zero monthly rent or mortgage costs and which is paid for by tenants. And yes, I own other cash-flow positive rentals which I am happy with.

I do agree that prices have fallen a bit since peak, but not a crash and not in all areas. Outlying areas and condos are down more than, say, OB. Prices might crash if rates rise, but it looks more like we are in for a long flat ride.

I hope prices drop and interest rates stay low - I'll buy more. As it stands now nowhere in BC that I'm interested in has dropped enough to make me consider another purchase.

I have been looking at commercial real estate lately and the numbers don't work either. Maybe I just haven't found the right place.

And as far as it being personal, it is not. The repetitive wrongness is just a bit annoying and I thought if it was pointed out clearly to you it might assist with a shift in viewpoint. It seems that in a way it did?

I agree that it is not worth responding to further and, hey, maybe your crash will materialize.

"The increase in chatter is likely due to the fact that Victoria's market is starting to crash. I think we will look back on this time (and earlier) as the beginning of the end of Victoria's housing bubble.

The same thing happened in the US immediately prior to and at the beginning of their crash.December 12, 2012 at 11:39 AM"

My view about the depth of Victoria's housing market price correction has been the same all along. It has not changed at all.

I did not predict.a crash. I have not deleted any previous posts unless I made changes immediately after posting them. More false accusations on your part.

You are now stooping so low as to make this a racial thing. I think you should be banned from this blog for doing this.

You simply have no evidence that I previously wrote about a coming crash for Victoria and then changed that view.

You were not invited into this conversation when it started a day or two ago. It is a display of poor manners on your part to join a conversation, make completely false accusations that you can't back with evidence, make racial comments and then try to look like the good girl by saying you want out of the conversation.

Blogger totoro victoria said...My conclusion is that you have difficulty with English and with being wrong.

It was never about pinning a specific phrase on anyone, it was about your prediction that there would be a crash very soon which changed early in 2014 from prices will crash in the near future to prices will decline slowly over a number of years plus a denial that you'd ever said anything different.

Many of your previous posts have been deleted. But I digress. Why would anyone care if you used the word "imminent" or "soon" or any other synonym?

My guess is that English is not your first language, in which case I would give some leeway. Ditto with disordered thinking which is hopefully partly cultural. So, I agree, it is probably time to give it a rest.

As for purchasing a home in 2012, yes, I bought a multi-family property with 20% down which I now live in for zero monthly rent or mortgage costs and which is paid for by tenants. And yes, I own other cash-flow positive rentals which I am happy with.

I do agree that prices have fallen a bit since peak, but not a crash and not in all areas. Outlying areas and condos are down more than, say, OB. Prices might crash if rates rise, but it looks more like we are in for a long flat ride.

I hope prices drop and interest rates stay low - I'll buy more. As it stands now nowhere in BC that I'm interested in has dropped enough to make me consider another purchase.

I have been looking at commercial real estate lately and the numbers don't work either. Maybe I just haven't found the right place.

And as far as it being personal, it is not. The repetitive wrongness is just a bit annoying and I thought if it was pointed out clearly to you it might assist with a shift in viewpoint. It seems that in a way it did?

I agree that it is not worth responding to further and, hey, maybe your crash will materialize.

I can see why you are upset by totoro's post. But there are some valid points and useful messages there. I remembered that you questioned and argued with a professional property appraiser and long time blogger (Just Jack) here as you didn't like the numbers he gave, without thinking that knowing property value is his full time job and he is really on your side. When these were pointed out to you, you just ignored and kept matching on, without saying: I am sorry that I didn't spend time to read details of Just Jack's posts.

No one is perfect, and we all make mistakes. So keep saying "you are wrong, I am right" all the time is a bit childish, regardless of what culture. English is not my first language, and I grew up in another culture, too. But I disagree with totoro, this has little to do with language nor culture, but more to do with the person.

So come down and relax, be less argumentative and more constructive, if you would like us to start reading your posts again.

House prices over the long run have easily beat inflation. Victoria houses for instance have beat inflation by an average 4% per annum for as long as we have records, 1960 I believe. However in inflationary decades accompanied by rising interest rates, they have beat inflation by over 10% per annum. I do not see why the 4% would ever fail in a world where currencies are not backed by something real. Perhaps you do, but I do not expect governments to reinstitute something like the gold standard in our lifetime.

It’s getting harder and harder to find a job in Canada, and even the booming west is seeing a worsening labour market, new StatsCan data shows.

There were 17 per cent fewer jobs available to Canadians in the first three months of the year than there were a year earlier, StatsCan’s latest job vacancy survey shows.

The number of people chasing after every available job in Canada has increased. There were 6.8 people looking for work per job opening in the three months ending in March, the survey found, up from 6.3 people per job a year earlier.

I believe most economists would concede that real estate is a hedge against inflation. Mostly because the component inputs into construction are a significant driver of the economy. From wood studs to washers, the construction and housing industry provides considerable goods and services to the economy.

Yet house prices don't directly follow inflation in the short term. Market fluctuations are common. Even today, you can find prices in one BC town decreasing while another city will have prices rising and yet both cities will have identical inflation rates.

New construction stimulates the local economy and you'll see home prices rise with rising construction costs. Under the theory of substitution, in an expanding economy, older homes will also follow the rise in prices of new construction.

In a contracting economy the opposite occurs. As more and more new homes are built, these near new homes compete with new construction and tend to drag down new house prices. That slows the economy down more and more and that causes a decline in house prices. Or to put it another way, in the beginning when there is very few new homes, new home construction leads the way in price advances as the economy expands. When the market is saturated with new or near new housing then prices will decline and you'll find existing homes as the driving factor in price declines.

In summary, over the long term home prices will track inflation, but it's the short term market that will make you or break you as a developer or speculator in real estate.

Jack - I think you are the best commenter here but in your last post you did not mention interest rates at all. I can't believe that inflation (if it does come - SJ says it is))won't drive interest rates and housing is not at all interest rate sensitive at this point. Also, inflation is targeted between 1 & 3 percent, interest rates have no cap.

“This is a good news story with clouds on the horizon because it’s a lot harder for rates to go down further and a lot easier for them to go up,” says Jamie Feehely, managing director of Canadian structured finance with DBRS.

I agree with Jack that housing will track inflation (plus a bit) over the long term. But you raise a good point. An outbreak of inflation (whenever it comes) will be accompanied by sharply higher interest rates that are more likely to crush prices than boost them.

Mind you at this point both above target inflation and substantially higher interest rates are WELL off into the future

Reasonfirst, LeoS had posted the 1960-present data here. I have it in front of me, however I'm not sure how to post it.

The past 54 yrs in Victoria have averaged 4% above inflation, however from 1966 to 1981 the average house gained 12% per annum #beyond# inflation. Noteworthy since the posted 5yr mortgage rate in 1966 was 7% rising to approximately 20% by 1981 and yet prices, for lack of a better word, skyrocketed. It's a misconception that rising interest rates lead to falling prices. More typically they rise in conjunction.

At this point I'm watching the vacancy rate more than the interest rate. This is the cruelest way to lose your home to foreclosure.

You can't take less on the rent because you won't be able to pay the mortgage. You can't sell the home as the mortgage is more than the house is worth.

You're caught between a rock and a hard place. And it happens so quickly. Unlike interest rates that could theoretically go up today but won't affect you until your mortgage renewal time.

A vacant home that is costing $3,000 a month is go to burn into any cash reserves and credit you have - very quickly.

Having said this, I am noticing a lot more vacant homes on the market these days - almost double of what there has been over the last decade. That must have a meaning in this market.

The other thing to watch is the mortgage default rate. With the low sales activity it wouldn't take much of a rise in the default rate to change our market from an orderly liquidation to one under duress. A market where agents practice trough pricing. In that a new listing is set slightly below the last price of a similar home to sell.

Foreclosure and vacancy rates, is there a good source for this data? Who tracks this?

An interesting quote from Dale Sheppard (local real estate agent).

"Another facet of the market to watch is the number of foreclosures. This is an unfortunate part of the market and due to the global economic slowdown, and the drop in local prices, the number of foreclosed properties has been increasing each year. 2013 had the highest number of foreclosures that I have ever seen. 2014 appears on pace for even more. The savior for the foreclosed property is increases in house prices, and once this starts to happen, there will be a decrease in foreclosures. During the last upswing, foreclosures virtually disappeared, which is a good thing. Let’s hope this happens sooner than later in this downturn."

The number of foreclosures is a tough one to track. It simply isn't common knowledge or a requirement for agents to disclose. Its like searching for Black Holes in space. You have to look at everything around a foreclosure.

First, the homes are going to be vacant. If the lender has Conduct of Sale, the owners are gone and the tenants have moved.

The property will tend to be neglected. Gone are the days of the agent mowing the lawns or sweeping the floors.

The water will be turned off and the property secured with a notice posted on the front door.

No disclosure statement. Not a chance that you'll have anyone put their ass on the line for a foreclosure.

"It's a misconception that rising interest rates lead to falling prices. More typically they rise in conjunction."

A two percent rise in rates would crush the housing market. Attitude towards debt has changed dramatically from the "good old days". Kids these days don't think of mortgage debt is debt at all. They think that rolling credit card debt into their mortgage means they become debt free. They are the ones that will facilitate the crash.

Don't under-estimate the reno cost. My friends' house in fairfiled, the one under reno right now and I mentioned here before, had more than $300k into it already and is still not water tight and not a single room is finished. They are going to change the contractor this month, but at the end, it would be total more than a year time and at least $750K to $800K to complete it.

There is another house near us under reno for more than half year now, very ordinary 60s spilt-level, and will cost over $600K when the dust settles in two or three months.

The issue is, when these renovated house go to market, the sellers normally think FMV = property value (before the reno) + reno cost. But the buyers may not think the same way, especially for the reno parts they don't like or need.

If you hire a general contractor to do your major reno, then you will lose buckets of money at resale time unless you are lucky enough to start your reno at the beginning of a five year boom cycle... but then again, if you buy at the beginning of a boom cycle you don't need to lift a finger to make a 100% markup.

Moral of the story... do the work yourself or piecemeal the work to the various trades or be prepared to lose a small fortune to a contractor.

An appraiser can provide a current value estimate of your home and a prospective value upon completion of any renovations that you are planning to have done.

Prior to the boom, contractors kept their costs in line with the market and a hundred thousand renovation did get a good pay back.

Not today, construction costs for renovations are from a different planet these days. A two hundred thousand renovation might only add 50 to 75K to your home value.

That might be okay if you've owned your home for a dozen years. But I think those that have bought in the last few years should stay clear of any substantial renovations.

I see a lot of waste by contractors. For example putting in new drain tiles. 5 men on the site for 10 days and each one of them had a company vehicle they drove to the site each morning. Plus a bobcat backhoe that spent most of the time idle.

That's at least $2,000 a day for men and equipment, with most of the equipment just parked, to dig a trench.

If this were Southern California, I could pick up a half dozen workers from the downtown in my pick up and have them dig the same trench in 5 days for a total of $2,500 rather than $20,000.

Double billing is another thing. The plans call for standard counter tops and you change them to granite. So you're billed the total cost of the granite.

You should only be charged for the difference between the two types of counters. And that happens on every item you change. Its all cost plus, plus. I remember one elderly couple that were charged another $35,000 for a heat pump. And the house was only at the framing stage of new construction. Eventually they had to sell the home because they couldn't get any more financing from the bank as prices went ballistic on them.

I think it boils down to that most people are taken advantage of when it comes to their lack of knowledge of construction and the trades.

Of course not all contractors take advantage of people but I wouldn't trust anyone under 30 with a new truck.

Just Jack - I am certainly with you on the contractor side. We traveled to PEI two years ago to build and live for a five year window. We created plans with a local family designer and planner/construction drawer.

Hired a local realtor/retired contractor to purchase the lot and then assist in finding builders.

House bid out to 5 then cut to 3 builders. All 3 did not/could not do modern HVAC we had used in B.C. so bid on a N.S. sub-contractor (+$10,000 for travel and extra costs).

Only 2 window suppliers on the whole island bid on the same window package and yet, yes a $22,000 difference for the same specs. installed. Couldn't believe it so I went around myself to get the quotes on a couple of major items and found the over-charging was common.

House that was to cost $155 sq ft ballooned to $225 a sq ft and certainly not up to the standards we would have been used to in B.C.

We met several times with our realtor to sort out what was going on and final conclusion "Westerners from away, we know they have money and we are smarter than them" Realtor agreed and we cancelled our build and kept the plans. Builders then contacted us directly trying to "amend a few items that might bring the build back on line..."

Now back in B.C. and looking to build but more the wiser and money is not burning a hole in our pocket. Sold the lot and said goodbye to family...... for now.

In my opinion you should look at homes similar in size and quality of finish that are just a few years older than what you want to build.

You'll still have to pay a premium but at least you know how much of a premium for a new home. The GST is a confusing one. Is the tax or is the tax not considered part of fair market value. Generally the answer is no, however the banks by policy do lend on the Net GST. Net GST being the cost of the home including GST with any tax rebates assigned to the builder.

Or better yet for a couple hundred bucks hire an appraiser. He/she will do all the leg work for you and be able to discuss what is fair and what is not. That includes, like in the case of Jack and Cate a proposed home just from the building plans.

Witnessing an egregious flip take place at 221 Skinner Street. I think this place was a court sale last year asking something like 299k? Now fresh paint = 400k asking. I wonder what else was done to it, as I walked through it last year and I thought I was going to get a lung disease from the mould and pee in the air. Truly needed to be taken down to studs in our opinion.

Now back to SJ, Ok I accept that Victoria houses have beat inflation by about 4%. It was more like 7% for the 10 years leading to the lastest peak in 2010. That in itself is cause for concern.

But is you look at the period of high inflation in Canada according to the BOC chart in the above post - 1973 - 1990 7.5%/year. Then you look at Leos chart, you can see this was a period of slower growth in Victoria prices not faster growth. House prices have grown much faster in the recent low inflation environment....a bit opposite of what you said... (PS this is just eyeballing the charts)

What I see is BC prices did remarkably better than inflation in the 70s despite cpi being near 10%. As inflation fell off a cliff in '82, so did prices. Now BC seems to do well as long as inflation is as high as 2%. The exception of course was 2011 due to the incredible deals across the border stealing our recreational and retirement market.yr cpi98 0.399 1.100 1.801 1.702 2.403 2.204 2.005 2.006 1.707 1.808 2.109 0.010 1.311 2.412 1.113 -0.1 Here are the BC inflation numbers. We are pulling out of the 0% range now to 1.5%.http://www.statcan.gc.ca/daily-quotidien/140523/dq140523a-eng.htm

I can understand NEW housing tracking inflation, but re-sales or used housing doesn't have to at all.

A pre-owned or used commodity is priced by supply and demand. If the marketplace is overbuilt in condos and buyers are scarce then pre-owned condo prices will not track inflation. They won't even match detached homes in appreciation. Certainly not manufactured homes, leaseholds, co-operatives, water front, acreage or Mansions. Even different locations like Langford and Fairfield can have prices going up and coming down at the same time.

The social, geographical, political and economic inputs that form value are vast and complicated. The Bank of Canada can announce an interest rate increase that could make prices go up or go down depending on if the local market is expanding or contracting.

Anecdotally speaking of the last several homes that I've been asked to value all of them were the same scenario. The home owner has moved back to Alberta for work and the mortgage is more than the property is worth. The home owner has simply walked and the lender is going for Conduct of Sale and a CMHC bail out. The home owner is not even going to try to keep title.

That's a lot different from a generation or two of home owners before. They felt they had a moral obligation to pay their bills. Not this time around - it's F*&K the bank - and back to Ontario they go.

-They say in BC the housings mighty fine-House prices went under water and bankrupted a friend of mine-Oh, I don't want no more of BC life-Gee Ma I want to go-back to Ontario-Gee Ma, I wanta go home.

It's straight from your BOC link above. Page 3, the red inflation line goes from 13% to 4% from ‘82 to ‘84. Most would agree, that is a cliff dive. Much bigger than the inflation dive in the early 90s recession that by the way also dropped Victoria prices. Prices and inflation typically dive together. I'm not sure why you think the opposite, that rising inflation drops prices. History shows real estate loves inflation.

SJ - I was going to re-phrase my admittedly premature comments about the cliff before I noticed you posted again.

To be more precise it went from 12.2 to 4.7 during those years (http://www.bankofcanada.ca/rates/related/inflation-calculator/)

That is a 60% drop - sure that sounds cliff-like. But looking at you BC numbers and change over four years e.g. 2006 to 2009 was a 100% drop. hmmm - maybe not so much in relative terms.

I did not say that inflation drops prices. You are using a strawman on that. I was arguing that your blanket belief that inflation is a home owners best friend is inaccurate.

How can you look a the last decade of the greatest growth in house prices when inflation has been extremely muted and see what you see? It means interest rates have had much more of an influence.

Inflation drives house prices in the short-term until interest rates kick in and destroy much of that gain. And with current debt levels, anything leveraged is going to be highly interest rate sensitive.

You can have rising inflation without pre-owned real estate rising too.

New construction has new inputs like timber, washers, cabinets, dryers and labour costs. New construction prices have to go up with inflation. If prices don't rise then builders stop building. You don't have that with pre-owned housing.

I think prices and recession dive together. Is it possible to have a recession and inflation at the same time? Locally, its quite possible.

Rising inflation can drop prices, as governments usually step in and raise interest rates to slow the economy down.

Generally, real estate is seen as a hedge against inflation. But I think house prices can get ahead of inflation as people flock to real estate to protect their wealth. Especially in this economy where there doesn't seem to be a viable alternative to real estate. Just like any other commodity to many over anxious bidders can spoil the market.

Pat said"If you think a takeoff in inflation without wages keeping up is going to boost RE prices you're kidding yourself."

Wage inflation is presently much higher than price inflation. Wages are growing at 4.4%, while the latest cpi for BC is only 1.5%.http://www.statcan.gc.ca/daily-quotidien/140529/longdesc-cg140529a003-eng.htm

That may be why Vancouver is heating up so much again. Van is now a seller's market again going by sales to new listing ratios.

http://www.cbc.ca/news/canada/british-columbia/vancouver-real-estate-hot-spots-identified-1.2684952He says it's not unusual for sellers to receive nine or 10 offers."Frequently, there are offers with hundreds of thousands over the list price,"

I am so glad that there is no bridge nor tunnel connected us to Vancouver. The few hundred dollars ferry cost is much better than "hundreds of thousands over the list price", plus the peace and quiet ... ...

hint - to get around TC Paywall, press ESC quickly after the initial text loads. Might need to press several times.

Property owner tax estimates range from $125 - $685 for the typical Esquimalt householder. A a straight-line calculation for Oak Bay, an average household in Oak Bay under the current plan would range from $450 - 2,700 - "That's not just during the time of construction, that’s from here on in"

"That is an astounding hit for any taxpayer," Jensen said, adding that while the dollar numbers vary from municipality to municipality, the magnitude of the increase will be the same.

If Esquimalt took the 19 million they would spent it plus more. You give any politician and city unions access to cash and they will spend it and more. Money that would be spent on wage increases, more management and frivolous items. As long as the city has a surplus it will spend like a drunk sailor in a Thai bar.

There would be no need to use it to offset property taxes. Esquimalt will always raise their taxes to be in line with the other cities.

You are asking Politicians, both present and future, to be responsible with the money. Like asking a banker to be responsible for your investments.

SJ could be right about rates but he/she is completely out to lunch on the effects.

"In addition, higher interest rates would likely slow the pace of growth in consumer spending and investment in housing. Consumer indebtedness in Canada remains high, and any increase in interest rates on consumer debt would lead to higher debt-service burdens and reduce the ability of consumers to finance additional purchases. Weaker consumer spending would, of course, have negative repercussions for growth in the broader economy.The Bank of Canada has a tricky job ahead of it—unwinding monetary stimulus after nearly six long years of interest rates at extraordinarily low levels. Getting the balance between controlling inflation and sustaining economic growth right will be a challenge. Homebuyers beware—the days of five-year fixed mortgages below 3 per cent may soon be a distant memory."

I laughed out loud at this property description, and not just because it evokes Sauron:

On top of a hill on a quiet street, flooded with light, you will notice a large mountain in the distance. That’s right, Mt. Douglas, staring directly at you day and night. Do you want to be that family everyone talks about? Cooking Chinese food will be a wok in the park using this kitchenette specifically designed to cook Asian culinary. This home is equipped with 8 bedrooms, 6 bathrooms, and two family suites. Rest easy, the added insulation used in this quality built home will ensure definite privacy when both mother-in-laws are in town. What are you waiting for? Book your showing, and view this wonderful spectacle of quality craftsmanship.

Have to be careful with property descriptions like that......a few years ago one of my clients insisted she write the description for her condo....a part of the description read, "Every person should have the sink of her dreams and this unit boasts a Franke [very expensive sink]." I ended up getting two hate emails over that.

I can understand why both the agent and the home seller may feel that the asking price is a "steal" at $799,000 for Regents Place.

That's because since the home owner bought their home back in 1998, the median price for homes in the core has gone from $230,000 to $599,000. Making their original purchase price trend up to nearly a million dollars today.

And it might have been, except that Victoria has a price ceiling for houses. That means a lot of better homes are competing at the million dollar mark these days.

If you're wealthy and don't need mortgage insurance, the quality of home at slightly over a million is magnitudes greater than just under a million. More so than in any other price bracket.

So properties, like Regents Place, take a hit and sell for under assessed value these days.

The home owner might have gotten their price a few years back - they just waited too long to cash in their real estate lottery ticket.

Hopefully they are ahead of the game with the new list price and have a chance at the lottery bonus number, otherwise they may just have to follow the market down.

""With interest rates expected to remain exceptionally low and household indebtedness high, these risks are likely to remain elevated for the foreseeable future," Mr. Zelmer said in an address at a housing policy conference in Toronto. His speaking notes were distributed to journalists."

"Does anyone know what the "story" is with foreclosure at 832 Haliburton Rd (MLS 339235)"

If it is the one I am thinking it is, I remember a number of years ago there was an older house for sale with a large piece of land (where this new house has been built). The older house was on a different road, I believe.

If I remember correctly, it was listed around $1.6M (not sure what the buyers paid for it). I believe they subdivided the land and created "Haliburton Heights"?

Regarding the foreclosure house - not sure whether the people/developer who bought the house and land built this house on spec, or somebody purchased the lot and built on it. I'm not even sure it has ever been lived in. All the pictures have shown the property empty (it has been listed before).

There's lots of them out there. And the agents do price aggressively in order to get that initial offer.

Although the agent has listed at an eye brow lifting price that doesn't mean you're going to get the home for that price. You could go in at full price and the offer not accepted by the Mortgage Company. In those cases the asking price is more of a "teaser" to get an auction going.

But maybe you don't have to do this dance with the mortgage company. Maybe you can use their teaser price as a negotiation tool when bidding on a similar home in the area. Perhaps a home that isn't under court order and has been up for sale for over 90 days now. You just have to ask that the seller match the price of the court ordered property.

Thanks, S-J. It seems that four agents have tried selling it over the past year - each at a lower price. 326334 $815,900 2013-07-23330297 $798,000 2014-02-15336790 $774,900 2014-05-02339235 $749,900 2014-06-21

It's an interesting point that Just Jack makes about the bank not being obliged to accept the listed price.

Based on this data, house prices in Victoria have fallen 12.2% from the peak that was established in May 2010 and are currently lower than at any point since August 2007 (except April 2014, when prices were 0.1% lower).

"Does anyone know what the "story" is with foreclosure at 832 Haliburton Rd (MLS 339235)"-------------------

If I recall correctly, this area of Haliburton Rd were new lots were created as part of a subdivision re-development project. If this is the property I'm thinking of, almost everyone involved lost money on this Haliburton subdivision/redevelopment project. Marko probably can't comment because one of his Realty colleagues was involved as a developer/promoter/investor. I think one or two lots are still for sale from this subdivision, but I'd never buy a steep hillside lot because the hillside would require geo-engineering to prevent sluffing, making it a very expensive build and only suitable for expensive geo-engineering if the lot had spectacular views, which these lots don't have. It's common for properties in failed developments to have multiple liens, so caveat emptor.

At a BBQ last Friday, some one we know says their vacation plans have been on hold for a while because they can't sell their rental property. I think they've been wanting to sell since last year. I guess they aren't getting the price they want. They've vowed to take a vacation as soon as it sells. Cross your fingers.

I overheard two moms chatting at a park, one was complaining that her family had to leave their home because of a showing (their home is for sale), "seems like our these showings have been going on forever", "I put in extra time cleaning and showcasing but it doesn't seem to make a difference", "So frustrating". "I didn't think it would be this hard to sell".

On the positive side, someone we know sold their home (1009 Richmond Ave) "after one day on the market". Now moving to a condo on beach drive. Smart lady!

Flatness:average Ternaet HPI over the last seven years = 139.2All but 5 out of 84 months were within + or - 5% of that average. Currently we are 3.9% below that average.

Of course in that seven years of approximate flatness inflation has eroded purchasing power by 11% (BOC Inflation calc) for a real return of -11% (on top of what you might have lost or gained by buying in one of the peaks or dips in the general flatness).

It's easy to see a correction in home prices playing out as continued flatness for several more years during which price to income ratios will gradually mean revert.

Based on this data, house prices in Victoria have fallen 12.2% from the peak that was established in May 2010. May 2014’s monthly price level was the lowest of any month since August 2007 (except April 2014, when prices were slightly lower).

In 2006, many housing industry "experts" in the US predicted a soft landing for their housing market, saying that prices would correct 5-10%, then flatten out while incomes caught up to support prices. How did that work out for them? Similar predictions were made for other (now deflated) housing bubble around the world.

Why didn't income gains stop the US housing correction after prices corrected 5-10%?

In general, income gains slow as the inflation stage of a housing bubble ends and the bubble deflates. This was true in the US and many other countries. The inflation of a housing bubble causes a dramatic increase in the level of activity of housing market related industries, finance, insurance, etc. and this boosts economic growth and wage growth to above average, unsustainable levels. As the housing bubble deflates, the level of activity of these industries cools significantly and this has a negative impact on economic growth and wage growth. As well, as house prices fall, consumer spending slows and this also has a negative impact on the economy and wage growth. Again, the US provides us with a good example of this.